Question

(Ignore income taxes in this problem.) If you wanted to withdraw $12,000 from a bank account at the end of each of the next 20 years, approximately how much would you have to invest in the account today assuming a 6% interest rate

Answer 1

Answer:

The money should be invested in bank = $137,639.05

Explanation:

Given  annually withdrawal money (annuity ) = $12000

Number of years (n ) = 20 years

Interest rate  = 6 percent.

Since a person withdraw money annually for next 20 years with 6 percent interest rate. Now we have to calculate the amount that have been invested in the account today. So below is the calculation for invested money.  

$\text{Present value of annuity} = \frac{Annuity [1-(1 + r)^{-n}]}{rate} \\= \frac{12000 [1-(1 + 0.06)^{-20}]}{0.06} \\=12000 \times 11.46992122 \\=137,639.05$